At the beginning of the current year, the United States economic system showed a decline for the first time since 2022, amid a significant increase in imports ahead of the announcement of tariffs on goods shipped to the US from other countries, and moderate consumer activity in the context of spending.
The media has already characterized the mentioned dynamic of the economy as the first sign of the impact of the consequences of the present configuration of Washington’s trade policy.
The inflation-adjusted gross domestic product (GDP) of the United States in the first quarter of the current year showed a decrease of 0.3% compared to the figure recorded for the same period in 2024. This is evidenced by the government’s initial estimate, published on Wednesday, April 30. It is worth noting that during the previous two years, US GDP grew by about 3% on average. Analysts interviewed by the media predicted that this indicator would decrease by 0.2%.
The current situation in the United States economic system is evidence that local companies are trying to secure merchandise from tariff increases.
Net US exports decreased by almost 5% from GDP in the first quarter of 2025. This indicator is a record for the entire history of observations. The relevant information is contained in the report, which was published by the United States Bureau of Economic Analysis on Wednesday. The impact factor on the mentioned indicator is a decline in federal spending.
Consumer spending, which accounts for two-thirds of the United States’ GDP, grew by 1.8% in the first quarter of the current year. This indicator is the weakest since mid-2023. At the same time, the mentioned result still turned out to be better than the preliminary expectations of analysts interviewed by the media. They expected consumer spending to grow by 1.2%.
A gauge of underlying demand in the United States economic system is solid. The fastest growth of business equipment purchases since 2020 has contributed to the stability of this indicator.
The latest United States GDP data shows that US imports for the first quarter of the current year showed a sharp increase of 41.3% compared to the reading recorded for the same period in 2024. It is worth noting that this growth is the most intense in the last almost five years. Since these goods and services are not produced in the United States, they are subtracted from GDP.
Many economists cited by the media expect that the sharp widening of the trade deficit in the second quarter of the current year will begin to reverse. If this assumption is materialized in the space of the economic system of the United States, a factor will be formed to support the recovery of GDP growth. At the same time, experts note that the impact of the mentioned factor on the US economy will be short-term.
In the context of longer-term forecasting of the state of affairs, analysts cited by the media expect that an increase in tariffs will provoke a supply shock. Also, according to them, the mentioned circumstance will become a challenge for US business. Moreover, analysts predict that the tariff increase will have a consequence in the form of falling demand.
Besides, experts cited by the media claim that retaliatory tariffs from world capitals against Washington will become a factor that will discourage exports. Also, in their opinion, the source of the impact in the form of levies will form a generally unfavorable order of things in the space of the United States economic system. Analysts expect that the corresponding scenario will transform into a situation existing in an objective reality environment by the end of the current year. In this case, the probability of a recession materializing in the US economy is what can be described as a coin flip.
Carl Weinberg, chief economist at High Frequency Economics, said in a note that if the blowout on trade is the result of companies pre-buying inputs to beat tariffs, in the second quarter of the current year, the decay in trade balance will reverse. This will ensure some GDP growth. At the same time, the expert highlighted that the corrosive uncertainty and higher taxes will drag the mentioned indicator back into the red by the end of this year.
The S&P 500 opened lower. This indicator fell by 1.5%. The Dow dropped by 400 points. The tech-heavy Nasdaq Composite fell by 2.2%. Treasury yields also showed a downward dynamic. President of the United States Donald Trump published a post on social media in which he stated that the country’s economy will take a while to show the results of the current policies and blamed the stock market’s performance on his predecessor Joe Biden.
In most cases, imported merchandise moves into warehouses or directly to storefronts. The data contained in the report published on Wednesday shows that business inventories contributed 2.25% to GDP in the first quarter of the current year. This figure is the highest since the end of 2021. The flood of imports may manifest itself in higher inventories in the coming months. Moreover, this circumstance may trigger GDP growth in the second quarter of the current year.
It is worth noting that swings in trade and inventories can sometimes distort overall GDP. Economists prefer looking at final sales to private domestic purchasers for a better snapshot of demand. The corresponding indicator in the first quarter of 2025 showed an increase of 3% compared to the reading for the same period last year. In the fourth quarter of 2024, this figure rose by 2.9%.
The growth of consumer spending was attributed to a broad-based advance in outlays for services and a pickup in nondurable goods.
The results of several specialized studies indicate that consumer attitudes have recently plunged in the United States. According to media reports, against the background of this circumstance, doubts about the ability of households to provide much fuel for the rising dynamic of the US economy intensified. Currently, low-income consumers in the United States are already facing difficulties. In this case, it implies a challenge in the form of high prices. At the same time, wealthier individuals in the current year were set back by a drop in stock prices.
Meanwhile, in the first quarter of 2025, business investment in equipment in the United States showed an increase of 22.5% compared to the reading for the same period in 2024. This result was a kind of addition to a surge in commercial aircraft shipments months after the end of the strike at Boeing Co. The output of information processing equipment and computers also increased in the United States in the first quarter of 2025.
Economists cited by the media claim that tariffs have a negative impact on capital expenditures. During the current earnings season, corporations acknowledged that the road ahead for consumers will be challenging.
Retailer Tractor Supply Co. and appliance maker Whirlpool Corp. are among those companies that have confirmed that discretionary spending and sales of big-ticket goods have decreased more recently. Many executives have drawn attention to the collapse in consumer confidence and the potential for a more guarded approach to spending.
Richard Westenberger, chief financial officer, and chief operating officer at baby apparel maker Carter’s Inc., said during an earnings call last week that it is difficult to imagine a more tumultuous market backdrop than the company experienced over the last couple of months.
The GDP report published on Wednesday shows that government spending for the first quarter of 2025 decreased by 1.4% year-on-year. It is worth noting that this is the first drop in the mentioned indicator since 2022. This figure is restrained by an 8% drop in defense outlays.
At the same time, a closely watched measure of underlying inflation accelerated to a 3.5% pace in the first quarter of 2025. This indicator is the maximum in a year.
The Federal Reserve system is currently in a difficult position. The corresponding state of affairs, which has become an insurmountable reality for the United States financial regulator, has been shaped by the impact of such circumstances as a high level of uncertainty about the prospects for the impact of tariffs on inflation and the economic situation in general.
The US central bank is not in a hurry to cut interest rates yet. The financial regulator has decided to refrain from making changes to its current monetary policy strategy until it is clear what the White House policies mean for the economy.
It is worth mentioning that the Donald Trump administration has announced a 90-day pause in raising some of the most punitive tariffs, which were decided in the first half of the current month. According to media estimates, the effective tariff rate of the United States currently stands at almost 23%. This figure is the highest in more than a century. The uncertainty is compounded by some exemptions from the previously announced higher tariffs.
Donald Trump and his advisors consider levies as a means to boost the growth of the United States economy in the long term through the revival of manufacturing. Mr. Trump also hopes to drive an increase in exports and erase deficits with Washington’s trading partners. Moreover, his plans include revenue growth for the government and bolster national security.
The media, citing expert forecasts, expect the government’s monthly jobs report, which will be published at the end of the present week, to show that some cooling is underway.
Data from ADP Research indicates that in the current month, employment at private companies rose a disappointing 62,000. This increase is the smallest since July.
A separate report showed a 0.9% increase in labor costs in the first quarter of the current year in the United States. These rates correspond to the dynamic of the indicator’s growth, which was observed at the end of 2024.
Returning to the topic of the recession in the United States, it is worth noting that the realism of this scenario is far from minimal, but it is not what can be described as a kind of absolute inevitability. Recession is technically defined as a broad-based contraction in the economy that encompasses the labor market, consumer spending, industrial activity, and business investment. The corresponding scenario is declared an established configuration of economic reality if it lasts more than a few months. The current results of polls and surveys may seem to indicate that the recession in the United States is already an existing situation, but this vision is still too pessimistic. The US economy remains in good shape in a few important directions.
The unemployment rate in the United States continues to be relatively low. In March, the corresponding figure was 4.2%. Businesses continue to invest in their operations. It is also worth noting that consumers have not yet reduced spending on a scale that could be described as somewhat critical in terms of economic impact. This is evidenced by government data.
At the same time, the situation in the United States economic system may worsen. The probability of a negative scenario will increase if Donald Trump continues to raise tariffs.
Gregory Daco, chief economist at Ernst & Young, said in a media comment that there is currently no reason to claim that a recession has been implemented in the United States. At the same time, according to the expert, the country is on a razor-thin edge where the longer the tariffs remain in place, the more likely the US is headed for an economic downturn.
Nela Richardson, chief economist at ADP, said that unease is the word of the day. It was also noted that employers are trying to reconcile policy and consumer uncertainty with a run of mostly positive economic data. According to Nela Richardson, it can be difficult to make hiring decisions in such an environment.
A rule of thumb for determining a recession is negative GDP, which has been observed for two consecutive quarters. There is no corresponding economic situation in the United States yet. The US National Bureau of Economic Research is the official recession arbiter. At the same time, it is worth noting that the group’s call can come many months after the actual start of the recession scenario.
The last time the mentioned scenario became a reality for the United States economic system was in 2020. At that time, the recession was observed for two months. The reason for the implementation of this scenario in the United States economic system was the coronavirus pandemic. Before that, there was the Great Recession, which was observed between December 2007 and June 2009. The mentioned economic downturn has become the most severe since the Great Depression.
Given that an unusually large amount of non-monetary gold has accounted for some of the sharp increase in imports, several economists cited by the media warned against placing too much importance on GDP data. Other experts also point out that the mentioned data does not change the narrative of an economy, struggling due to tariff-related uncertainty.
